Factors Affecting Degree Of Mispricing

In standard finance, the assume "rational investor" has their own limitations on explaining stock market price anomalies in China,Since the1980s, Behavioral finance which relax "rational investor" hypothesis began to rise. At the same time, efficient market hypothesis is also being questioned. From the view of investor psychology, the securities prices will be affected by the overall market sentiment and the individual stock sentiment as well. As the further study in the behavioral finance, researchers discovered that stock return will find a different change with the earnings management changes. Therefore this article will be implemented the real earnings management and accruals earnings management into the framework of the study trying to explain the factors that have effect on the stock’s market price deviating from its intrinsic value. The core of the article is the cross section analysis about the degree of stock pricing error based on investor sentiment and earnings management.Firstly, it is the analysis on the relation between the pricing error and two investor sentiment, the one is overall market sentiment, the other is individual stock sentiment. Secondly, the paper also studied the impact of earnings management in two different ways on the stock pricing error. With the2004-2012panel data of the A share of620stocks listed companies from Shanghai and Shenzhen stock markets of China as research sample, the paper proves that the overall market sentiment and the individual stock sentiment, as well as accrued earnings management and real earnings management is stock pricing error influence factor and that investor sentiment on the stock pricing error role in promoting is more obvious in corporate stock with positive pricing error.Meanwhile, the paper demonstrates how the company’s nature and whether the company listed overseas the same time role in investor sentiment and earnings management cross-sectional affect on the stock pricing error. The article draws the following conclusions through empirical research individual stock sentiment has a greater impact on pricing error in private enterprise, while earnings management in two different ways role in the stock pricing error has no obvious difference in private enterprise. The situation is the same in the company listed overseas the same time. According to the article concluded, stock price information has important implications for the practice of business management and stock investors. So managers should pay more attention to the long-term value of the company; When deciding investments, according to the investment sentiment exhibited characteristics to develop appropriate investment strategies. Investors should develop appropriate investment strategies based on investor sentiment exhibited the characteristics and analyze the differences between companies as well as making appropriate transaction according to different company stock characteristics; while stock pricing error long period of state, will lead to resource allocation function of the market’s not full. Related parties should provide the appropriate policy to make better role in market.